Gold continues downward spiral

Yellow metal makes fresh 2012 lows, with analysts expecting more pain for the gold bull

Gold has all but lost its shine with the yellow metal plunging to $1,550 per ounce in early trade on Tuesday, a couple of sessions after witnessing its worst weekly drop this year.

Gold prices slumped $61.10 per ounce, or nearly 4 per cent, last week to close at $1,583.60 per ounce on Friday, May 11, compared with $1,644.70/oz that they closed at the previous week, on May 4, 2012.

Continuing the rout, gold is down more than $23.5 per ounce, or 1.50 per cent, yesterday to close at $1,560.60, and was trading lower by another $10 Tuesday morning, at $1,550.36 per ounce at 10am UAE time (6am GMT).

Locally, the retail price of 24ct gold in Dubai was fixed at Dh186 per gram Tuesday morning by the Dubai Gold and Jewellery Group, while 18ct gold can be bought for Dh142.50 per gram.

Gold has been on a downward spiral amid fears over a worsening European debt crisis and sharp losses in equities and commodities, and is trading at its 2012 low (of $1,560 per ounce, recorded on January 1, 2012).

Last Friday, the last trading day of the week, the metal came under heavy selling pressure after JP Morgan Chase & Co, an investment bank, revealed a $2bn trading loss, denting sentiment.

“Sentiment soured after JP Morgan announced $2bn in losses from its synthetic credit portfolio since the end of March,” wrote Standard Bank analyst marc Ground in his Friday’s commodities analysis daily.

“Added to this, reports that Spain was making a fourth attempt at a domestic bank rescue package and the ongoing political uncertainty in Greece, there was only one way for market to go – down,” he commented.

In addition, political and financial uncertainty in Europe, most prominently in Greece, France and Spain, kept traders’ confidence low and further squeezed precious metal prices.

Gold has now all bust lost its safe haven status, with the metal now plunging on political uncertainty whereas in the past, such worries would send punters scurrying towards the metal. Now, however, the US dollar is slowly but surely emerging as the go-to instrument for risk-averse investors.

With gold busting through its $1,578 support level, analysts aren’t too optimistic about the metal’s fortunes in the rest of the year, with most experts reckoning that it will soon fall through the next resistance level of $1,523.90, and fear that it could end up below $1,500 levels as well.

“All I’m saying is that, in my opinion, the gold price correction is not yet entirely completed. I see significant support around the $1,500/oz level, but it could drop even lower,” Marc Faber, nicknamed Dr Doom for his contrarian views expressed in the popular Gloom, Boom and Doom newsletter, said recently.

“We could have a big correction if global liquidity tightens or they stop printing money, Marc Faber said in March at the Middle East Investment summit in Dubai.

That forecast seems to be coming true now.

EARLIER STORIES...

Gold drops below $1,700/oz; how much lower can it go?

Spot gold prices fell below $1,700 per ounce for the first time in almost six weeks as China, the world’s second-largest economy after the US, lowered its 2012 growth target to an eight-year low of 7.5 per cent.

While spot prices fell to $1,694.82at 1.30pm UAE time (9.30am GMT), a gram of 24ct gold was retailing in Dubai at under Dh200, its weakest showing in 45 days.

Yesterday, after the Chinese government’s announcement of a lower than the earlier forecasted 8 per cent growth target, the price of gold traded in a wide range between $1,695 and $1,720 per ounce in overnight trading.

Gold prices are down almost 9 per cent in six months even as analysts are predicting that the spot price will breach $2,000 per ounce – a gain of almost 18 per cent from current prices – in the next 12 months.

On the other hand, silver prices dipped only marginally today and were trading at $33.46 per ounce at 1.30pm UAE time. Silver has seen limited gains recently as the white metal is up 2.17 per cent in 30 days. However, that is on the back of a correction that it saw in February, and silver is still down almost 20 per cent in six months.

Marc Faber, the famous author of the Gloom, Boom & Doom Report, said yesterday that the price of gold could fall to under $1,500 per ounce. “In my opinion, the gold price correction is not yet entirely completed. I see significant support around the $1,500/oz level, but it could drop lower. It depends on global liquidity and on money printing by central banks. We could have a big correction if global liquidity tightens or they stop printing money,” Faber said in an interview with The Gold Report.

He further maintained that silver prices will, in the long run, track gold. “Gold and silver will move in the same direction, up together or down together. At times, silver will be stronger relative to gold, and at other times gold will be stronger relative to silver,” he said.

Like to have your gold in blue or purple?

The 8th Dubai City of Gold Conference will unveil the latest research and development on new varieties of gold. These include new gold colors such as purple and blue, gold alloy effects, powder metallurgy, gold based composites and new colored gold coatings.

Future trends in research to produce transparent gold, color changing gold, and functional and smart gold alloys will also be discussed.

The conference, to be held on 13th November 2011, is an annual global event for the gold, jewellery and diamond industries organised by the Dubai Gold & Jewellery Group (DGJG),

New research and development is poised to influence the gold and jewellery markets, consumption and jewelry marketing trends in the near future and will multiply the usage of gold. Progress on technologies such as textile based, sputtering techniques, laser sintering and nanotechnologies will also be assessed in light of their expected impact on the usage of gold not only in jewellery but also in industry.

 

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